Pay off student loan interest or invest in low-risk?
I am a recent college graduate, and am formulating a plan for
eliminating my student loan debt with as little interest accrued as
possible. The loans after consolidation have an interest rate of
5.375%, I'm presuming compounded yearly, but I'll have to check. I
have minimum payments of ~$150/month, which I can make with no problem.
My question is: does it make more sense for me to pay more than the
minimum (like 400/month) in order to pay off the principal faster, and
thus pay less interest overall, or does it make more sense for me to
pay the minimum payments and put the money I would otherwise use to pay
off the loan debt to use in mutual funds?
I'm thinking I might invest with just $1000 or so in stocks just as a
fun thing. I used to follow the stocks in the NY times, and think that
I could beat inflation, at the very least. :) But for my student loan
debt, I'd rather have a less risky investment, so maybe a consistantly
performing, if slightly anemic, mutual fund, or maybe municipal bonds.
What do you all think would be the wisest course of action for me? I'm
no econ major, so any advice would be appreciated.
- The goal is to put your money to use where it earns the best
rate of return. If all you do is beat inflation, then you
are getting about 4%, and that is taxable. If you pay off
your student loan, you are getting 5.375%, and that is tax
free.